Developing a Local Investing Ecosystem. Dedicated to keeping our community economically vibrant!

Transcription

1 Developing a Local Investing Ecosystem Dedicated to keeping our community economically vibrant!

2 Why invest locally? Our mission is to create opportunities for local individuals, businesses, and local investors to connect and network. Why? 1) To help build prosperous local businesses. 2) To keep investing money in our community. 3) To help build a more resilient and sustainable LOCAL economy. 4) To create personal connections and build community. 5) To get money to people that can use it.

3 What is LION? A network of citizens who want to invest their money locally. Grassroots, independent, and 100% local. An organization that helps members become aware of investing opportunities in their community. Part of a nationwide movement that is pulling money from Wall Street and investing it in local small businesses. A model that can be replicated anywhere. The next evolution of a long tradition of local investing.

4 What is LION not? LION is not a bank, pooled investment, or loan fund. LION does not make collective investment decisions or give advice to investors or businesses. LION is not a business and not a nonprofit.

5 Types of Local Investments Existing Small Businesses Refinancing credit card debt or bank loans Short and medium-term loans Lines of credit Equity/ownership (less common, more complex) Startup Businesses More speculative Real Estate Loans More conservative & collateralized Requires far more capital Loans to Non-Profits

6 How does it work? New investor members sign a Membership Agreement which provides for confidentiality, conflict resolution, and a disclaimer of legal liability for LION. Businesses submit business opportunities to LION and members receive them via . Some businesses are invited to present in person at our monthly meetings. Members contact the applicant directly if they are interested in investing. Deal terms are negotiated directly between individual investors and businesses, not by LION. We meet 3x per year to talk LION business, and we host an annual community outreach event.

7 A Profile of Local Investing From 2006 to 2011, LION members near Port Townsend, WA (population 9,000), invested over $2.7 million locally an average of $137,000 per active investor. The average local investment deal size was $64, out of 43 deals were loans, and nine were equity. 37 were small business deals and six were real estate deals. 47% of all deals were done by single investors and 53% were done by investor groups. The average interest rate for loans was 5.3%, and the average duration of loans was 4.6 years.

8 Examples of Local Investments

9 Secret Garden Cottages Uptown cottage housing by a local architect & homebuilder

10 Mt. Townsend Creamery Locally made, award winning artisan cheeses

11 The Upstage Popular Downtown restaurant and live entertainment venue

12 Finnriver Farm & Cidery Local leader in sustainable organic farming & artisan cidery

13 How do we start our own local investing group? Start with a core group of motivated investors that are committed to expanding their local investing. Agree on basic principles of how to operate. Spread the word to local business owners. Present to community groups. Keep the media informed. Educate your local small business center, community college, and EDC about your group s mission.

14 The Local Investing Ecosystem Sharing Information & Knowing Each Other s Missions Small Business Development Center Economic Development Council Investing Opportunities: Small Business, Real Estate, Non-Profits Local Investing Group / Local Investors Local Banks Local Non- Profits Educational Institutions

15 Whatcom Investing Network (WIN) Established in mid-2011 out of Transition Whatcom s Personal Finance Workgroup. It is independent of Transition Whatcom. WIN is an informal group of local citizens who are interested in making financial investments in Whatcom County, WA that promote long-term sustainability. Used LION s starter kit to establish the agreements and initial processes.

16 About Whatcom County Whatcom County is the NW County in Washington State. Canada borders to the north. Population is 200,000 with over 80,000 in Bellingham the County seat and largest city. Main industries include agriculture, fisheries, education, retail and services, and refineries. 64% of businesses are 1-4 people.

17 WIN To Date 46 members members actively investing. Nearly $700,000 invested locally in ten projects. 60% Acceptance rate (% of investment opportunities that have been funded). 100% Repayment rate.

18 Ways We Catalyze Local Investing We created monthly orientation sessions open to anyone who wants to learn about our model; followed by getting to know the members social hour. Introduced local economic development organizations to our model: Sustainable Connections, SBDC, Port of Bellingham, NW Innovation Resource Center, NW Agriculture Business Center, and Bellingham Angels. Offered workshops for businesses on nontraditional sources of funding. Presented at local business conferences.

19 Building for Success Problem: Half of members participating Solution One: We created U-WIN workshops on conducting due diligence and reading financial statements, expanding into self-directed IRAs and other topics. Solution Two: Starting this summer, we will organize house parties and word of mouth events to promote WIN. Problem: 60% Acceptance rate Solution One: We established partnerships with SBDC, NWABC, and other consultants to assist businesses in being better prepared to present to WIN. Solution Two: We now require that businesses obtain Small Offering Exemption (Rules 504 & 147) from Washington State Dept. of Financial Institutions.

20 Keys to Success EDUCATE! EDUCATE! EDUCATE! Your members, your community, local media, and your local economy ecosystem partners. Share and celebrate success stories! Create and leverage partnerships with other members of your local economy ecosystem. Connect with other communities that are doing this at (Launching later this summer)

21 For further information LION Community Outreach: James Frazier LION web page: Local Investing Resource Center: WIN Community Outreach Contact: Renata B. Kowalczyk WIN site: whatcominvesting.wordpress.com

22 BALLE s Community Capital Webinar Series The Highly Replicable LION Investing Model: Lessons Learned and New Innovations May 14, 2013 Contact information: James Frazier [email protected] Renata B. Kowalczyk [email protected] A RECORDING OF THE WEBINAR CAN BE FOUND AT: Record of public chat Benjamin Smith: under SEC and/or state regulations - I thought it was illegal to fund startups through LION? I thought it had to be established businesses. Is that not the case? Michele Bertaux: real estate as in homes or for businesses? What about farms? renata kowalczyk: Absulutely YES to farms! renata kowalczyk: I can also address the SEC/state regs Susan Miller: any defaults to date? renata kowalczyk: not in WIN Jill Epner: Do the LION members get together to make joint investments, or is there just shared due diligence and individual checks that get written? Carmen Lorentz: are these typically bank-able deals or are they a lot higher risk? If bank-able, what is motivation of the borrower? Benjamin Smith: advertising this investing? I thought solicitation was illegal as well? renata kowalczyk: the latter Jill. Puling money is illegal but we conduct due diligence together and everyone makes their own individual decision Beth Gehred: I'd like to hear more about the pooled due diligence. What does this look like? Is there liability in that?

23 Tim Weinhold: Are WIN 'investors' only making loans, or are they also making equity investments? What are typical loan terms? Jill Epner: With some of the challenges around securities law, is LION possible through the friends and family exception? James Frazier: Jill, that's usually how deals work Jill Epner: Or I guess the broader question is that what are the legal challenges that other LION groups need to be aware of when considering deals. Jill Epner: thanks James James Frazier: building community & making connections = more "friends". We will speak to this. Michele Bertaux: this exemption is specific to WA state? James Frazier: yes Jill Epner: CA does not have this exception unfortunately. James Frazier: state securities laws vary and they usually control local investing James Frazier: CA is a very strict state Tim Weinhold: For both LION and WIN, how did you go about finding and assembling your core founding group of local investors? Cynthia Fargo: Does this mean we cannot do a local investing network like this in CA Jill Epner: There are actually some groups doing this in CA through the Slow Money chapters. They take advantages of the friends and family exceptions. Jill Epner: Slow Money NorCal is particularly active and has a LION group. I'd be happy to connect you Cynthia if you'd like. Cynthia Fargo: Yes, thank you! Carmen Lorentz: do your members pay a membership fee of any kind? Joan Knight: Is anyone here from Vermont?

24 Tim Weinhold: Is the only difference between WIN and LION vs. Slow Money that the latter focuses pretty narrowly on local food? James Frazier: I believe so Jill Epner: Yup, Slow Money is focused on food, farming & fiber...anything that has to do with soil. James Frazier: local food is probably the most popular sector for LION and WIN though Beth Gehred: Is it all volunteers arranging the house parties and organizing the workshops, etc? Any paid staff? If not, how do you see this sustaining itself? Benjamin Smith: what types of documents i.e. loan agreements, etc. are needed, James you have a kit? James Frazier: yes, at confiso.com Benjamin Smith: thanks Rachel Maxwell: For Renata, how long does it usually take to get a response from the SEC after filing a 504 Form D? Jill Epner: One point of clarification, Renata. Slow Money chapters vary greatly on their structures, and there are still a considerable of deals happening with unaccredited investors. Our base in NorCal is almost entirely unacredited. Beth Gehred: Actually SM chapters are all independent and operate in different ways. Deals are crafted in many different ways and some have higher or lower interest rates, and some have unaccredited investors renata kowalczyk: good to know Jill. Thank you. renata kowalczyk: thank you Beth for clarification. Benjamin Smith: James or Renata - is the money that comes to LION pooled in a fund etc.? or is this illegal? Zach Liggett: In LION and WIN, can non-members attend presentations from the businesses seeking investments?

25 renata kowalczyk: pooling money is illegal Benjamin Smith: ok thanks renata kowalczyk: Zach, non members can only attend if the business says it's ok for them attend Benjamin Smith: so interest rates don't count as fees? and those go back directly to the LION individual investors? renata kowalczyk: the only fee there is it's the $50 to state for 504 Benjamin Smith: right but LION investors get paid interest in their loans, correct? and they are paid directly by the business. James Frazier: investors get paid but LION does not Benjamin Smith: thanks Michele Bertaux: loans are not collateralized, generally, correct? James Frazier: generally not Zach Liggett: Does LION require its borrowers to file first with Washington regulators like WIN does? James Frazier: no but it's a good idea to encourage businesses to be compliant Amber Cameron: Do you know of models working for large metropolitian areas? I'm interested in building this in the Minneapolis/ St. Paul area Susan Miller: what have default rates been for LION? Benjamin Smith: NYC has a Lion James Frazier: we will speak about defaults soon Jill Epner: What is the average length of time it takes to get deals done? From the time that an entrepreneur starts to engage with the investor group to when checks get written... General time frame? Rachel Maxwell: It's all about love! James Frazier: 1 month?

26 Jill Epner: thanks James renata kowalczyk: it is Rachel! Benjamin Smith: is LION or WIN incorporated? LLC? renata kowalczyk: we are not organizations. We are loose network of volunteers Rachel neither LION or WIN are entities. Benjamin Smith: thanks Jill Epner: That's a great point, James. Local investing is a longer process and takes some time and intention. Cynthia Fargo: James: How have you seen entrepreneurship classes and economic activity change as a result of LION - thanks. Joan Knight: Thanks for all of this! Jill Epner: Such great information, thanks you guys!! Beth Gehred: Thanks! Great work and info! renata kowalczyk: your welcome!!!! James Frazier: Cynthia- Yes! renata kowalczyk: thank you for the opportunity to share! James Frazier: Thanks everyone. Feel free to Renata and/or me with any questions. We're happy to help. Cynthia Fargo: Thank you both so much! renata kowalczyk: YES!!! Mikel Davila: Thank you!